Blocked overtime rule may require changes

By Adam Moore

Business owners and pro-business groups are breathing easier after a federal judge in Texas on Nov. 22 temporarily blocked the U.S. Department of Labor from enacting new overtime regulations, but the decision has left many employers with more questions than answers.

Judge Amos Mazzant of the U.S District Court for the Eastern District of Texas granted a preliminary nationwide injunction halting the DOL from enacting revisions to the Fair Labor Standard Act, which would have doubled the salary threshold for exemption from overtime pay from $23,660 a year to $47,476, potentially impacting more than 4 million workers.

Twenty-one states, the U.S. Chamber of Commerce and other plantiffs sued over the regulations. They requested an emergency injunction in October, claiming that the DOL exceeded its authority by raising the threshold too high, and by incorporating automatic adjustments to the threshold every three years. Opponents also argued that the new rule would cost businesses $12 billion over the next decade.

Mr. Mazzant found that the plaintiffs had a substantial likelihood of success in challenging the regulation changes, writing that the injunction “preserves the status quo while the court determines the department’s authority to make the final rule as well as the final rule’s validity.”

With the last-minute reprieve, many employers who spent months evaluating and restructuring their job classifications in anticipation of the new regulations are now wondering what to do now. While specific advice is needed for each individual employer, here is some of the best overall guidance out now from local and national HR professionals.


What do employers need to do now?

In short, nothing. The preliminary injunction means that employers nationwide are not required to meet the new overtime threshold, and may continue to follow the existing threshold, which sets the overtime exemption at $23,600 per year, or $455 per week.

Does this put an end to the revised overtime rule?

No, the injunction simply delays implementation of the revised rule until the court has the opportunity to fully review the merits of the plaintiff’s case. The rules may still take effect in the future, meaning that employers may still need to make staffing or payroll adjustments eventually. “Don’t scrap your plans, merely put them on ice,” writes Mark Hudson, a labor and employment attorney with Shuttleworth & Ingersoll. “The rule is not necessarily gone forever – just temporarily postponed.”

The DOL, in a statement released shortly after the decision, said that it is examining its legal options, meaning that a challenge of the injunction is likely. “The department’s overtime rule is the result of a comprehensive, inclusive rulemaking process, and we remain confident in the legality of all aspects of the rule,” the department wrote. The incoming Trump administration has not yet staked out a position on the issue.

Nevertheless, the rule may face an uphill battle. Mr. Mazzant wrote in his decision that “the Department has admitted it cannot create an evaluation ‘based on salary alone,’” but that the “significant increase to the salary level creates essentially a de facto salary-only test.”

What should employers who have already raised salaries or reclassified employees do now?

Employers who have already provided salary increases to employees to maintain their exempt status will likely want to leave those in place, advised Alfred Robinson Jr., an attorney with Ogletree Deakins in Washington, D.C., as those would be difficult to reverse without damaging morale.

Employers who had reclassified exempt (salaried) employees to nonexempt (hourly) status may wish to reverse course, although the change will still need to be made if the court eventually finds the DOL’s changes to be legal. Employers who had not yet reclassified workers will likely want to postpone those decisions and wait for the litigation to conclude, Mr. Robinson said.

Companies will generally want to consider the cost savings of restructuring their workforce and payrolls after months of preparations, Mr. Hudson advises. “If you restructured departments, is the cost savings of not implementing the FLSA regulations worth the undoing of the changes?” he wrote.